Indian Banks Slash Lending by 10%

RAPAPORT... Bank financing to India's gem and jewelry sector has fallenat least 10% since April 1 due to stricter lending conditions, according to the nation's Gem& Jewellery Export Promotion Council (GJEPC).Credit providers tightened their rules after allegations inJanuary that jewelry tycoon Nirav Modi had defrauded Punjab National Bank of $2billion. Financial institutions have been requiring higher collateral levels since the scandal, the GJEPC explained Tuesday. In addition, lenders that offer "discounting" - givingcompanies an advance on their customers' unpaid bills - are increasingly insisting on clearing all the relevant invoices. Borrowers must gives invoices to their bank, which sends the documents on to the buyer's bank. That means sellers only receive payment, and buyers only receive the goods, once both lenders have given their approval. That requirement isdamaging traders' relationships with their customers and restricting cash flow,the council added.Meanwhile, banks have stopped offering discounts for the sector when charging fees for assessing borrowers before granting a loan, the GJEPC noted. "The industry is witnessing a crisis of sorts, as the bankshave curtailed lending to the traders, and [are] demanding collateral securityand extensive documentation," said GJEPC chairman Pramod Agrawal. "We arehoping that the government will intervene and bring some relief to the ailingindustry that contributes 7% to [gross domestic product]." India's gem-and-jewelry exports will also decline 10% in thefiscal year ending March 2019 as the credit situation will adversely affect thesector, the GJEPC predicted. Shipments out of India fell 9% year on year to$10.1 billion for the industry in the April-to-June period, it added. The GJEPC took measures in May to deal with the crisis,including launching a digital know-your-customer platform, MyKYC, andpublishing a policy document outlining how the jewelry and banking industriescan reduce risk.Agrawal has also called on the government to offer theindustry an interest-subvention scheme, in which the state helps borrowers withtheir interest payments.Image: Wael Khalill Alfuzai/Shutterstock